Select Committee on Environmental Audit Minutes of Evidence


Memorandum from the Quarry Products Association (QPA)

INTRODUCTION

  The Quarry Production Association represents the aggregates industry, including the quarrying and dredging of primary aggregates, the processing and marketing of recycled materials and secondary aggregates, the production of asphalt, lime, mortar and ready-mixed concrete, and asphalt contracting. The QPA also represents companies producing plant and equipment and providing a range of services to the sector. QPA members produce 90 per cent of aggregates supply, and a higher proportion of the value added products supplied by the sector. Forty per cent of aggregates are used in public sector projects.

  We welcome the opportunity to provide further evidence to the committee relating to Government's consideration of potential aggregates taxation and the QPA New Deal proposals.

CONTEXT AND DEVELOPMENT OF GOVERNMENT POLICY ON AGGREGATES TAXATION ISSUES

  In the July 1997 Budget a supplementary Treasury paper announced that research would be commissioned into the environmental costs associated with quarrying, with the results to "inform consideration of whether there is a case for further measures which could include tax measures . . ."

  In May 1998, Planning Minister Richard Caborn confirmed that Government would consider an alternative approach to aggregates taxation: "we remain open to suggestions which could be demonstrated to significantly mitigate the environmental impacts (of quarrying). This might mean additional regulation through the planning system, action by the industry, or a combination of both".

  The November 1998 Pre-Budget Report confirmed this process, "the extraction of aggregates, such as gravel, can have a damaging impact on the environment. The Government will consider the case for an aggregates tax, in the light of the responses to the recent consultation and proposals made by the industry to reduce the environmental impact of aggregates extraction".

  "Such proposals would have to amount to a deliverable package of measures which would permanently secure equivalent or greater benefits than a tax".

  The 1999 Budget stated: "Results from the second round of research into the environmental costs of aggregates extraction shows that there are significant environmental costs associated with the extraction of aggregates. The Government believes there is a case, in principle, for an aggregates tax . . . However, before coming to a final decision on whether to proceed with a tax, the Government would like to pursue further the possibility of a package of voluntary environmental improvements by the quarrying industry. Should the industry not be able to commit to an acceptable improved offer, or fail to deliver an acceptable package of voluntary measures, the Government would then introduce a tax".

QUARRY PRODUCTS ASSOCIATION RESPONSE AND PROPOSALS

  The QPA has consistently held the view that taxation would be an ineffective means of minimising the environmental impacts of the quarrying industry and the key policy aim should be to seek the most effective means of reducing impacts on local communities and encouraging improving environmental practice in the supply of aggregates.

  In November 1998, a framework package of voluntary/regulatory proposals as an alternative to aggregates taxation was submitted to Government.

  In July 1999, following the Government's statement in the March 1999 Budget, the QPA submitted an improved and more comprehensive New Deal package to Government. Copies of that submission were circulated to members of the Committee, but not in time for consideration in the Committee's inquiry into the 1999 Budget.

  The aim of the submission below is not to duplicate the full QPA New Deal in defining the detail and purpose of each of the individual QPA proposals. It is, rather, to highlight the major issues and potential contributions the QPA New Deal (or aggregates taxation) can make to the achievement of Government's policy aims. The submission complements the New Deal and refers specifically to issues raised in the Pre-Budget Report.

KEY ISSUES

General Purpose of Taxation

  Environmental taxation has two theoretical purposes—either to alter behaviour of a market to a more sustainable end, or to raise revenue (or perhaps a combination of both).

  The consideration of aggregates taxation has been confirmed consistently by Government as an environmental issue, notably with regard to seeking real improvements in the quality of life of local communities in quarrying locations. Equally, the comparison between potential aggregates tax and the QPA proposals is an environmental one, not a decision to be based upon revenue-raising potential. This was expressed with particular clarity in the 1998 Pre-Budget Report, which stated, "Such proposals (ie those of the QPA) would have to amount to a deliverable package of measures which would permanently secure equivalent or greater benefits than a tax."

  The QPA New Deal has been developed expressly to deal with the environmental impacts of quarrying such as those identified in the 1998 and 1999 Pre-Budget Reports and in the externality research by London Economics (Note 1) in a more effective manner than taxation.

THE ENVIRONMENTAL EFFECTIVENESS OF THE QPA NEW DEAL AND POTENTIAL AGGREGATES TAXATION

  The QPA proposals have been designed specifically to generate real and continuing environmental improvements in the operations of the quarrying industry. The proposals encompass a range of measures to generate environmental improvement, for example;

    —  through commitments to implement environmental management systems and transport codes early and fully;

    —  through commitments to optimise the level of recycling through significantly higher levels of investment to enhance recycling capacity;

    —  through the establishment of a sustainability fund to finance environmental improvements for local communities affected by aggregates production;

    —  through engaging Government in a partnership to support quarry operations with good environmental practice through public purchasing policy.

  The potential aggregates tax, on the other hand, is essentially a straightforward production tax, which is not designed to achieve specific environmental objectives, nor to distinguish between different levels of environmental performance.

  In order to assess the environmental merits of the QPA proposals and the potential tax, the QPA commissioned Professor David Pearce to examine the consequences of elements of the QPA New Deal relating to training and environmental management, and aggregates taxation. The report by Professor Pearce has been circulated in full to Committee members, to Government, and to a wide range of stakeholders in this issue. The report ("The Economic Benefits of Environmental Training and Awareness Programme in the Aggregates Industry" by Economics in the Environment Consultancy—EFTEC—July 1999) concludes that:

    There are powerful reasons for supposing that an aggregates tax is an inefficient solution to the aggregates externality issue. Thus we conclude that there is evidence to suggest that a well designed voluntary agreement will achieve as much or more environmental benefits as an aggregates tax.

  The work by Professor Pearce and EFTEC did not assess the environmental impact of other elements of the QPA package such as the voluntary sustainability fund, recycling initiatives, or green purchasing initiatives. We would envisage therefore that the implementation of the complete QPA package would generate more environmental benefits than the initiatives specifically assessed by Professor Pearce and EFTEC.

  We believe the work of Professor Pearce and his colleagues at EFTEC is the most significant independent contribution to the aggregates tax debate since the issue was first raised by Government. Due to the July availability of this work, the Committee did not have the opportunity to consider this assessment in its inquiry into the 1999 Budget.

  The work of Professor Pearce/EFTEC is particularly important because there has been no other detailed consideration of the environmental efficiency of the QPA New Deal/potential aggregates tax published. In spite of starting formal consideration of aggregates taxation in July 1997, Government has published no consultation or discussion papers identifying the potential aims of aggregates taxation, nor the means by which these aims may or may not be achieved. The QPA has developed its New Deal package on the assumption that the mitigation of environmental impacts set out in successive Budgets, Pre-Budget reports, and a number of Government statements is the key issue. (The Committee may not be surprised, however, that a number of people and organisations with whom we have discussed our proposals have viewed the tax proposals as more driven by revenue than environmental considerations).

RECYCLING

  Over the past decade there has been a significant increase in the use of recycled/secondary aggregates, as set out below:

Table 1

Million Tonnes


Aggregates Source
1989
% share
1998
% share
1989-98
% change

Primary Aggregates
300
91
218
83
-27
Recycled/Secondary*
30
9
44
17
+47
Total
330
100
262
100
-21


  *Data on the use of recycled/secondary materials is not precise. The figures above represent our best judgement based upon Government, aggregates industry, and other research sources.

  Survey work carried out by the Building Research Establishment suggests that the re-use/recycling of demolition and construction materials in aggregates markets amounts to 41 million tonnes pa.

  The use of recycled/secondary materials in aggregates markets has increased for a number of reasons, including:

    —  The increasing cost and scarcity of landfill space.

    —  The increasing involvement and investment by aggregates companies in recycling markets, bringing greater technical, commercial and financial resources into the sector.

    —  The development of specifications to better accommodate the use of recycled/secondary materials.

  The QPA New Deal proposals build upon these developments through:

    —  The QPA proposal to guarantee investment in enhancing recycling capacity of £25 million pa for five years (we estimate current QPA investment in recycling at £3-£5 million pa).

    —  The QPA bid to fund the Aggregates Advisory Service and jointly manage the AAS (with the Building Research Establishment).

    —  The development of rigorous sustainability indicators, including indicators in respect of the use of recycled/secondary materials.

    —  The development of a green purchasing initiative in the sector including recycling criteria.

    —  The continuing promotion of the use of recycled/secondary materials, such as the current discussions between the QPA and the Highways Agency to develop specifications for the use of recycled/secondary materials.

  It has been suggested that aggregates taxation is necessary to ensure the full use of recycled/secondary materials, and therefore that recycling becomes a justification for taxation. In our view this justification is not valid because:

    —  The use of recycled and construction materials in construction markets is increasing already without an aggregates tax. (see Table 1)

    —  An effective environmental instrument—landfill tax—already exists in the sector. A primary purpose of landfill tax is to encourage recycling, and now that the landfill tax is established and increasing it is not clear what additional stimulus an additional tax instrument would provide. No quantified analysis has been published through Government sources to identify the specific potential impact on recycling markets of aggregates taxation. In contrast, the results of research commissioned by the European Commission has concluded that aggregates taxation would be unlikely to generate significantly greater use of recycled material (see Note 2).

    —  The QPA New Deal includes a guarantee of very substantial increases in recycling investment and other measures to promote the use of recycled/secondary materials in aggregates markets.

    —  Current targets for the use of recycled/secondary materials in aggregates markets by 2001 have already been met. (Mineral Planning Guidance Note No 6 set a target for 2001 of 40 million tonnes—our estimate of the use of these materials in 1998 was 44 million tonnes).

EXTERNAL COSTS AND BENEFITS OF QUARRYING

  The Pre-Budget Report states that "the extraction and transport of aggregates generates adverse environmental effects including noise, dust, visual intrusion, loss of amenity and adverse effects on nature" (Para 6.14). The summary set out in Table 6.1 "The environmental impact of tax measures" defines the environmental impact and policy objectives of "aggregates tax or alternative package of voluntary measures" as follows;

  Environmental Impact

    Possible reductions in noise, dust, visual intrusion, damage to wildlife habitats and other environmental impacts.

  Environmental Objectives

    Internalise environmental costs of aggregates extraction. Encourage use of recycled aggregates.

  As set out earlier, the aim of the QPA New Deal is to minimise the adverse impacts set out in paragraph 6.14 and table 6.1 (and therefore the externalities associated with quarrying), to encourage recycling, and in addition to support a range of environmental initiatives through the proposed £20 million pa. Sustainability Fund. Table 6.1 of the Pre-Budget Report quotes "possible" reductions in environmental impacts as a consequence of the potential environmental measures, although no mechanism has yet been proposed by which this could be delivered. On the other hand the QPA package would deliver real and significant benefits, through targeting precisely those impacts identified in successive Budgets and Pre-Budget Reports.

  This reference to the environmental impacts of policy measures being only "possible reductions in noise, dust, etc. . . " appears an extremely modest policy expectation. It does not match the criteria for good taxation associated with the Government's statement of intent on Environmental Taxation set out in paragraph 6.23 of the Pre-Budget Report: "Economic instruments must deliver real environmental gains cost effectively".

  This modest expectation for "possible reductions" in the impacts of aggregates extraction contrasts with the much more significant expectations for environmental improvements listed for the other 13 announced tax measures or measures under consideration in table 6.1.

  This strongly suggests confusion and lack of clarity at the heart of Government's aggregates tax consideration. On the one hand, we are told that the policy aim is to minimise the adverse environmental impacts of quarrying, on the other hand that the policy aim is to internalise external costs—based upon the research results commissioned by Government from London Economics. The particular difficulty is that these are not mutually compatible aims. Levels of tax which might match the apparent environmental costs identified by the research would not have any significant environmental impact, as the research by Professor David Pearce confirms.

  Even if one takes the calculated externalities as reasonable assessments, the next policy step should be to assess how best to reduce those externalities, not just to assert that tax to match externalities is a policy aim in itself. While such an approach may produce a neat theoretical economic equilibrium (costs=taxation), it does not deal with the real issue—how best to reduce and permanently minimise adverse externalities.

CONCLUSION

  The QPA believes our proposed New Deal package represents a far more effective means of reducing environmental impacts than the proposed aggregates taxation. The New Deal proposals would generate a faster and more comprehensive rate of improvement than would be possible if the tax was introduced.

  We believe that the proposals submitted to Government in July 1999 represent a major commitment by the aggregates industry and we acknowledge that this commitment would probably not have been made so completely without the threat of taxation.

  The QPA proposals will generate a site-specific response to environmental impacts and therefore will be of direct benefit to local communities.

  The QPA proposals will recognise different levels of environmental performance and be able to reflect this in the delivery of our commitments. Tax, on the other hand, would not distinguish between those operators with good and poor environmental performance—all would pay the same.

  The QPA proposals will help to ensure the prudent use of natural resources through the promotion of best environmental practice and recycling initiatives, and also that the extraction and supply of aggregates resources is carried out to continuously improving environmental standards.

  The QPA proposals would involve a positive partnership between the quarrying industry, Government, and other stakeholders. It is particularly important that Government supports the commitment to higher environmental standards through the influence of public purchasing policy and, by such leadership, private purchasing policy.

  Tax would have little impact on environmental performance or standards. The low price elasticity of demand for aggregates would mean that, in general, the overall level of demand for aggregates would not be significantly affected by tax.

  The tax charge would be passed on to the construction industry and construction clients, increasing the cost of construction. Public sector projects would be significantly affected as these account for 40 per cent of aggregates supply.

  Existing initiatives, supported by the substantial investment and promotional measures included in the New Deal, will ensure further increases in the use of recycled and secondary materials in aggregates markets.

  The quarrying industry supports 40,000 jobs, mainly in rural and semi rural areas. The introduction and inevitable escalation of taxation over time would threaten the viability of some operations and associated employment. The New Deal, however, would ensure that environmental improvements are implemented throughout the industry in the most cost-effective manner.

  The implementation of the New Deal would ensure that the UK quarrying industry is the world leader in environmental performance.

NOTE 1

The Environmental Costs and Benefits of the Supply of Aggregates—research by London Economics

  London Economics was commissioned in September 1997 to research the "Environmental Costs and Benefits of the Supply of Aggregates". Following publication of the report in April 1998, concerns expressed by QPA and others prompted the DETR to commission a peer review of the report by Professors Susan Mourato and David Pearce of CSERGE, University College, London. The peer review concluded "we reluctantly conclude that mainly because of problems with the design of the questionnaire, the CV estimates cannot be considered sufficiently robust to inform decisions about a possible aggregates tax. Potential errors are of unknown magnitude and we are not able to say if they are under or over estimates". The peer review made a number of recommendations as to how the work might be improved, and London Economics were then commissioned to carry out a further research project. This resulted in a further report published in May 1999. The report included a range of monetary valuations for various sources of aggregates supply. The QPA continues to have serious doubts about the derivation of these valuations, but rather than becoming embroiled in a debate about specific valuations, we have used the externalities—or environmental impacts—identified in the LE research to focus the QPA New Deal on the reduction of the key environmental impacts.

NOTE 2

Report to DGX1 European Commission "Construction and Demolition Waste Management Practices, and Their Economic Impacts." February 1999 Report by Symonds, in association with ARGUS, COWL, and PRC Bouwcentrum

  "8.8  However, we believe that widespread and consistently high levels of recycling (by which we mean 75 per cent or above of "core" C&DW being recycled in most regions) is likely to be achieved only if some form of ban on landfilling C&DW is imposed and enforced, or if a requirement is put in place that all C&DW must be separated with each stream being directed to some form of re-use or recovery operation. Doing this would effectively remove the second condition from the list in paragraph 8.7 above.

  8.9  By contrast, we believe that relying on a mechanism such as a tax on landfill or a tax on primary aggregates would not on its own achieve high recycling rates under all circumstances, because the tax would have to be set at politically unacceptable levels before it changed the behaviour of engineers and demolition contractors in areas with easy access to landfills (or quarries). Varying the tax rate to match local conditions would create considerable distortions to trade, and would therefore probably be equally unacceptable."

October 1999


 
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